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29 Apr 2013

Assessment of Game Theory

At best, game theory predicts reality in the same way as “The Emperor’s New Clothes” predicts the future political path of Yair Lapid. (Israel's Minister of Finance)

How game theory will stop Iranian nukesI've devoted most of my life to economic theory and game theory. I believe that I would like to do some good for humankind and, in particular, for the people of Israel.
by Ariel Rubinstein for Haaretz.
(via Steve Keen on Twitter).

Game theory is mentioned often in economic circles, to some extent it held out hope of making economics a science by replacing outdated and entirely erroneous assumptions about consumer behaviour. I'm very doubtful about the use of these hypothetical and abstract models for predicting real human behaviour.

Rubinstein, who has studied game theory for 40 years, confirms many of my suspicions:

Nearly every book on game theory begins with the sentence: “Game theory is relevant to ...” and is followed by an endless list of fields, such as nuclear strategy, financial markets, the world of butterflies and flowers, and intimate situations between men and women. Articles citing game theory as a source for resolving the world’s problems are frequently published in the daily press. But after nearly 40 years of engaging in this field, I have yet to encounter even a single application of game theory in my daily life. [my emphasis]

Like the use of quasi-medical Latin terminology in translations of Freud's vernacular German (e.g. ego for Ich) the fact that game theory is presented in formal mathematical language "creates an illusion that the theory is scientific."

"some have recently contended that the euro bloc crisis is like the games called Prisoner’s Dilemma, Chicken or Diner’s Dilemma. The crisis includes characteristics that are reminiscent of each of these situations. But such statements include nothing more profound than saying that the euro crisis is like a Greek tragedy."

Steve keen merely says "Realistic assessment." At the end of the article Rubinstein confesses that his first choice for a title for the article was "Why game theory doesn’t solve the problems of the euro bloc and won’t stop Iranian nukes" but he thought it might put people off.

This Blog is about other ways of looking at the Global Financial Collapse, now also being called the Second Great Depression, mainly focused on the UK. It is by and for non-economists, but informed by the work of economists who saw the danger and were ignored.

Something is seriously wrong in the state of economics and politics. They've driven us into a ditch and won't let go of the steering wheel. Things are much worse now than in the First Great Depression. We need some new ideas, and preferably from people who understand the real economy.

If nothing changes we face a generation of Economic Depression.

Business policy has become political policy; and business values have become social values. We need to reverse this!